Deep discounts failed to help retail sales

Rachelle Transtrum pushes her cart around the Nampa Franklin Road Wal-Mart as she navigates through the large crowds Friday, Nov. 28, 2008, in Nampa, Idaho (AP Photo/Idaho Press-Tribune, Greg Kreller)

Rachelle Transtrum pushes her cart around the Nampa Franklin Road Wal-Mart as she navigates through the large crowds Friday, Nov. 28, 2008, in Nampa, Idaho (AP Photo/Idaho Press-Tribune, Greg Kreller)

Photo: Greg Kreller, AP

Photo: Greg Kreller, AP

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Rachelle Transtrum pushes her cart around the Nampa Franklin Road Wal-Mart as she navigates through the large crowds Friday, Nov. 28, 2008, in Nampa, Idaho (AP Photo/Idaho Press-Tribune, Greg Kreller)

Rachelle Transtrum pushes her cart around the Nampa Franklin Road Wal-Mart as she navigates through the large crowds Friday, Nov. 28, 2008, in Nampa, Idaho (AP Photo/Idaho Press-Tribune, Greg Kreller)

Photo: Greg Kreller, AP

Deep discounts failed to help retail sales

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Deep discounts over the holidays weren't enough to save the nation's retailers from a dismal shopping season, based on disappointing sales figures reported Thursday by even stalwart companies like Wal-Mart Stores Inc.

Wal-Mart reported a 1.7 percent increase in sales, excluding gasoline, at U.S. stores open at least a year, but the world's largest retailer missed analysts' expectations and cut its fiscal fourth-quarter earnings projections. The low-price retail leader has been one of the few bright spots in the industry.

Macy's Inc., which has struggled along with other major department-store chains, reported a decrease of 4 percent in same-store sales for the five weeks ended Jan. 3 and said sales for the combined November-December period were down 7.5 percent. The company, which is based in Cincinnati, also announced Thursday it was closing 11 stores; the sole California closure will be in Los Angeles.

San Francisco's Gap Inc. reported a comparable-store December sales drop of 14 percent, with the company describing the period as challenging and highly competitive in terms of discounted prices. Comparable or same-store sales are considered a reliable measure because they exclude the impact of store openings and closings.

High-end retailers like Neiman Marcus Inc. and Saks Fifth Avenue experienced some of the worst declines, reporting sales drops for the month of 27.5 percent and 19.8 percent respectively. Same-store sales at Nordstrom dropped 10.6 percent, but that was not as much as analysts predicted.

"The season certainly lived up to the infamous billing of being the worst on record," said Michael Niemira, chief economist and director of research for the International Council of Shopping Centers. The industry group reported U.S. retail sales fell 2.2 percent in November and December, the worst performance since at least 1970.

But the news wasn't necessarily all bad, according to several retail experts. While the numbers were downright dismal in October through much of December as news of the poor economy curbed spending, sales dramatically improved in the week before and after Christmas.

"Shoppers did make the decision to wait until the last moment to make their holiday purchases to see what more would develop in the markets. Traffic and sales improved quite a bit just before Christmas and after, so clearly all those promotions helped shoppers get off the dime," said Frank Badillo, senior economist at TNS Retail Forward, a market research and consulting firm.

Badillo's firm calculated an overall December sales decline of 1.5 percent, compared to a 2.5 percent sales drop in November.

"The numbers continue to be bad, but there's some reason to believe they're bottoming out," Badillo said. "They aren't getting worse and we won't necessarily see sales spiraling downward in 2009."

The heavy discounting that occurred throughout the holiday season might have spurred some last-minute spending, but those promotions will clearly take a toll on company profits.

The holiday specials might also pressure retailers into offering lower prices through the spring and into summer because consumers have come to expect heavy markdowns.

"The new price for fresh product will be a little lower than it used to be, and it will marked down sooner," Hastings said. "But the industry is not turning into a dollar store."

Wal-Mart's poorer-than-expected showing contributed to a jittery stock performance on Wall Street Thursday. Several retail consultants and economists said price competition from other retailers likely hurt Wal-Mart - as well as the company's excuse of bad weather and weak international sales - but the fundamentals of Wal-Mart remain stable.

Shoppers appeared to be reluctant to spend money on big-ticket items, which hurt sales of home goods and consumer electronics.

Costco Wholesale Corp. posted a 4 percent drop in same-store sales for December, but the company said it would have recorded a 4 percent increase for the month excluding gasoline sales and assuming no change in currency values. Lower gasoline sales reduced sales volumes and a stronger dollar has hurt international sales for companies like Costco and Wal-Mart.

At Gap, same-store sales dropped 12 percent at North American Gap stores, 15 percent at its Banana Republic division and 16 percent at Old Navy stores.

Another San Francisco retailer, Williams-Sonoma Inc., reported a same-store sales decline of 24.2 percent for the eight-week period ended Dec. 28. The high-end kitchen wares company, which does not release monthly figures, said it expects its fourth-quarter earnings to be lower than expected.